DTN Fertilizer Outlook

World, Domestic Fertilizer Prices Mixed in October

Strengthening world prices for urea helped support domestic prices in the U.S. (Chart courtesy of Karl Stenerson)

AMMONIA

World ammonia prices moved lower early in October, but have stabilized over the past few weeks. Little spot business was concluded in Yuzhnyy, former Soviet Union (FSU), and export tons are still priced at the $170 to $175 per metric ton level we saw at the end of September.

Following significant additional volume entering the market in the Middle East after the start-up of the new ammonia plant in Saudi Arabia last month, it is believed the majority of the short-term surplus has been sold. Additionally, Sabic, a Saudi Arabian producer, reported its plans to take down one of their ammonia plants for a one-month turnaround beginning Oct. 28.

The supply situation in the Middle East is certainly looking tighter going forward and it seems Middle East spot free on board (fob) prices found the bottom early in October at $145 to $160 mt and have increased to $155 to $166 mt as of late.

Yara and Mosaic settled the contract price for November deliveries into Tampa at $210 mt cfr (cost and freight), flat from the previous settlement of $210 cfr for October. This rollover settlement is the first time the price has not fallen on a month-to-month basis since the settlement for May deliveries. The outlook for world prices in the coming weeks is broadly stable as participants on both buyers and sellers believe a bottom has been reached and expect some degree of stabilization in the near term.

Shortly after the Tampa delivery settlement, CF Industries announced the new large-scale ammonia plant at Donaldsonville, Louisiana, was started up in September and has achieved operation at its capacity of approximately 3,600 tons per day. The new OCI Iowa Fertilizer in Wever is still on track for start-up of ammonia production before the end of the year.

New sales of direct-application ammonia have been slow but demand in the Midwest is expected to grow early in November. Anticipating more buying interest, sellers have set new prices, some moving higher and others lower. Some application has begun in the Dakotas and western Iowa, but Omaha and Sioux City prices are each down about $5 to $365 to $375 per short ton (st). In Minneapolis prices were off $10 to $15, to $350 st, as high moisture levels in the fields are dampening fall buying.

Central Illinois wholesalers had little to report up until late October, when buyers started stepping in to get some tons into position. Meredosia and Pekin spot prices firmed to $385 to $390 st, up from $365 to $385 last month. Light volumes were sold across the Wheat Belt for the winter wheat run and prices were slightly lower on the month, with Houston truckloads down $10 to $245 st and Enid off $10 as well to $290 st. Midwest prices should hold fairly steady over the next month as fall application starts, but we look for a downward price adjustment after current inventories are replaced with lower-priced product from new domestic capacity.

UREA

World urea prices strengthened in October as traders took positions on expected good demand from Turkey, Brazil, the U.S. and Europe. In Yuzhnyy, prilled prices edged up to $190 to $195 mt, up from $18 to $187 mt at the end of September, as prompt availability has been limited. However, for November, all three FSU producers are expected to be offering ton as OPP and Dniepro restart. Yuzhnyy prices may come under pressure, but if Egyptian values hold, then so should Yuzhnyy prices. Last Egyptian granular sales were concluded in the $204 to $215 mt fob range, up from $192 to $197 mt at the end of September, with new offers at $218 to $221 fob, which seems to support the view that the market will hold.

Although European buyers still seem reluctant to accept the higher Egyptian values, sales to cover shorts in the region were made at the end of October and the expectation is that buyers will now return to the market as there appears to be little hope for lower prices in the near future. In China, higher coal prices continue to push up fob values, trading at $215 to $220 mt as of late October, up from $195 to $198 mt early. On top of that, the Indians are expected to return with a tender soon, and with Chinese production rates reportedly averaging 55%, a tender could prove to drive demand from a number of supply markets. The short-term outlook for world urea prices is firmer.

Strengthening world urea prices supported domestic prices as did reduced import volumes. NOLA (New Orleans, Louisiana) prompt barges were trading at $181 to $188 st in late September, but were up to $198 to $202 st by the end of October. December barges reportedly traded at $206 to $210 st, while January barges have been agreed at $210 st. Warehouse prices moved up as well by measure of $10 to $20 due to higher replacement costs.

Some light end-user demand surfaced toward the end of October, but more action is expected nearer harvest completion. Many market participants are questioning the legitimacy of the price run-up given the start-up of new domestic production and the current lack of end-user follow-through. But short domestic supply and higher fob prices in the Middle East are supporting higher NOLA fob values, at least for the short-term. Unless Donaldsonville has been running at higher rates in Q3 and will continue to do so in Q4, it does not look like the loss in imports will be met by increased domestic production. We look for domestic urea prices to run steady to slightly firmer in the short-term.

UAN

In early October, CF posted their Cincinnati terminal price down $12 from September to $160 st for 32%. Using conservative transportation costs, that Cincinnati price netbacked to well below $130 NOLA fob, whereas barge trading at NOLA was taking place higher in the $130 to $135 st range for imported product. CF has been facing competition from East Coast rail suppliers in that market and it looked to be an attempt to deter that competition.

Initially, the lower Cincinnati price did less to encourage buyers to step in than it did to encourage buyers to wait for lower prices. But with no news on the progress of CF's Port Neal and OCI's Wever now expected to be producing UAN in Q1 or Q2, buyers are beginning to suspect there will not be enough new production for everyone to get a piece of the pie. That, paired with higher urea prices potentially lending support to UAN prices, motivated buyers to step in late in the month and conclude some significant layering in.

At the end of October, CF brought their Cincinnati terminal price up $5 to $165 st for 32%. Central Corn Belt suppliers also firmed up their prices late in the month after reporting solid buying. Central Illinois and Dubuque spot prices for 32% are at $172 st and $175 st, respectively. A seller here is reportedly sold out through FY2016 and spring prepay prices are $10 higher than spot, at $182 to $185 st. With suppliers comfortable with the amount of sales they have booked heading into 2017 and potentially higher urea prices lending support to UAN, we look for prices to run steady to slightly higher in the short term.

DAP

With the main Asian and Latin American markets moving out of season, slow demand and a quiet market continue to pressure phosphate prices. This is despite moves to cut supply in the coming months, with OCP due to initiate rolling turnarounds in Morocco starting the end October, which are expected to remove 240,000 mt from the market in November and December. Moroccan DAP prices were down close to $10 from September, now at $332 to $341 mt fob. Chinese DAP prices have hit a low of $290 mt, down from September's low of $310 mt. While the reduction in China fob values has triggered additional purchases in Pakistan and to a lesser extent India, producers are expected to face even lower numbers to keep tons moving as global demand on the horizon appears thin.

Offers for MAP have held up in the key South American markets of Brazil and Argentina, down only $5 in October to $345 to $350 mt cfr. However, importers are waiting for as long as possible in the hope that deferring their purchasing decisions will yield yet lower prices. With prices for DAP in the Baltic, China and Australia down to $300 fob, U.S. producers are feeling the heat in Central American markets. Offers for U.S. DAP in Mexico are reported at $335 fob, but prices above this are no longer deemed achievable. Indeed, Mexican buyers are confident that prices of $330 fob U.S. Gulf and below are on the not-too-distant horizon. Without a revival in demand in Europe, Asia or the U.S., prices are looking increasingly vulnerable unless additional supply side control measures are applied. The short-term outlook for world DAP prices remains weak.

Domestic DAP prices were flat to slightly slower as seasonal fall application demand limited downward price movements in most markets. As harvest progressed, buying in the Corn Belt increased with steady application taking place. MAP interest has been slightly stronger than DAP with prices $10 to $15 higher depending on the warehouse. Prices in St. Louis, Memphis and Houston were each off $10 month-on-month, while winter wheat buying, although steady, was not strong enough to meet the additional supplies from the surge in imports seen in late September.

Activity in the NOLA barge market remains limited. Despite improved upcountry demand, dealer requirements have been and continue to be covered with tons already positioned. Suppliers are concerned that demand will be deferred to spring and product purchased on a hand-to-mouth basis in the coming months. Against this backdrop, prices for DAP barges have fallen to $304 to $305 st fob NOLA, from $315 to $317 st at the end of September.

Meanwhile, offers for December open-origin DAP barges are reported at $289 to $290 st against which bids are reported at $280. River close and fall application buying should limit downward price developments in Midwest warehouses through the short term. However, international prices will continue to weigh on NOLA fob values and we expect to see price softening appear in Southern markets as wheat preplant application comes to an end.

POTASH

Domestic potash prices held steady in October on hand-to-mouth buying. Midwest prices are still $240 to $250 st and $235 to $250 st in the Midsouth. In the Corn Belt and Midsouth, orders are being delivered in moderate volumes and a few new sales are being booked. Midwest wholesalers report that demand has been better than expected but still average at best. Moderate buying was concluded in the Southern Plains as product makes its way to the fields for pasture work and harvested corn fields. NOLA barge trading has been illiquid and prices indicated slightly lower than last month, with $205 to $210 st covering bids/offers as of late. With some fall buying still to take place and a few wholesalers reporting tight spot supply, some warehouse prices may see slight increases over the next month. However, for the most part, short-term needs have been covered and we look for domestic potash prices to run flat in the short-term.

Questions for Karl Stenerson may be sent to Talk@dtn.com

(CZ/AG)